The Blog of International Judicial Assistance | By Ted Folkman of Pierce Bainbridge

Posted on January 25, 2016

The District Court of the Hague has rejected Ecuador’s attempt to set aside the interim awards entered by the tribunal hearing the BIT dispute between Ecuador and Chevron. As I have previously noted, the tribunal had ordered Ecuador to “take all measures necessary to suspend or cause to be suspended the enforcement and recognition within and without Ecuador of the judgments” the Ecuadoran courts had issued against Chevron, pending the outcome of the arbitration.
Ecuador challenged the interim awards on the grounds that there was no agreement to arbitrate, because Chevron did not have an “investment” in Ecuador within the meaning of the US/Ecuador BIT. In the past, I haven’t delved into the merits of this argument, because it’s really a substantive question of investment treaty law, and I don’t have much to add to the discussion. I’m not going to comment on the merits of the argument here, either. The court agreed with Ecuador that it should review the question de novo, but it went on to reject Ecuador’s challenge. On the one hand, this is bad news for Ecuador, because barring a different outcome on appeal in the Netherlands, Ecuador can expect the same outcome if it loses the arbitration on the merits and seeks to set aside the award. On the other hand, Ecuador has reason to be more confident about winning on the merits than it was in the past.

The court also rejected Ecuador’s argument that the interim awards were contrary to public policy. The first point of interest was Ecuador’s argument that the interim award could not require Ecuador’s government to suspend operation of the award, because Ecuador was not a party to the Lago Agrio case and under Ecuadoran law the judiciary is separate from the executive. Ecuador’s argument, though, seems to me to be clearly wrong. Ecuador was responsible for the failure of its courts to suspend the judgment just as the United States was responsible for the failure of its courts to stay the judgment in the Medellín v. Texas case: as far as international law concerned, a state is responsible for all of its organs, executive, legislative, and judicial.

Perhaps more important, the court rejected the argument that suspension of the judgment would have a negative effect on the Lago Agrio plaintiffs, and that that effect would violate public policy. Yes, suspension of the judgment would adversely affect the LAPs. But the court held that this was acceptable because the interim award was based on

serious indications that the judgment rendered at first instance in the Lago Agrio proceedings, which is the basis for (the suspended) enforcement by the Lago Agrio claimants,
came into being fraudulently—including on the side of the Lago Agrio claimants—and under political pressure.

The court also referred to the RICO judgment, which of course postdates the interim awards:

These indications of fraud have been confirmed in the nearly 500 page judgment of the aforementioned District Court in New York of 4 March 2014 (hereinafter: the New York Judgment), on the basis of which the Lago Agrio claimants are prohibited from cashing in their claims within the United States and in which it is ruled: “If ever there were a case warranting equitable relief with respect to a judgment procured by fraud, this is it.”

(The court then gives an overview of Judge Kaplan’s findings, which I don’t review here). Ecuador indicated to the court that it planned to challenge much of this evidence in the arbitration, but according to the court, Ecuador didn’t make a sufficient offer of proof in order to allow the court to give much weight to its argument.

My best guess is that Ecuador will appeal, because it wants to be able to say that it obeys all final awards in BIT disputes after it exhausts its remedies. So we probably have not read the last of this.